Stocks Rally Wavers on ‘Warning Message’ in Data: Markets Wrap

(Bloomberg) — US stocks erased losses after consumer confidence unexpectedly fell the most in three years, shaking investors’ conviction that the Federal Reserve could engineer a soft landing for the economy.

Most Read from Bloomberg

The S&P 500 Index was little changed — the equities benchmark had set a closing record in the prior session. The Nasdaq 100 gauge edged up 0.1%, erasing losses after the Conference Board’s gauge of sentiment posted the biggest drop since August 2021, data out Tuesday showed.

The report flagged concerns about the labor market. Manufacturing data also came in weaker than expected.

“The decay in the perceptions of jobs available was striking,” according to Carl Weinberg, chief economist at High Frequency Economics. “It also will deliver a warning message about the state of the economy to financial markets.”

Traders have been waiting on further signals of how big the Federal Reserve’s next interest-rate cut will be. They upped their wagers to a little over three-quarters of a point of policy easing by year-end after the confidence data, suggesting at least one more major rate cut is in store.

Two-year yields fell to 3.55% after the data which BMO’s Ian Lyngen said was positive for the policy-sensitive maturity.

Still, “unless and until flagging confidence translates into lower consumer spending, the shift in sentiment won’t become a monetary policy influence,” according to Lyngen.

The report contrasted with the views of Fed Governor Michelle Bowman, the only policymaker to dissent on last week’s 50-basis point cut. She said the central bank should lower interest rates at a “measured” pace, arguing that inflationary risks remain and that the labor market has not shown significant weakening.

A handful of other policymakers, including Chicago Fed President Austan Goolsbee, have said the focus needs to shift from inflation to jobs. Goolsbee said the central bank may need to cut rates “significantly.”

Subscribe to the Bloomberg Daybreak podcast on Apple, Spotify or anywhere you listen.

US bond yields were mixed ahead of a $69 billion auction of two-year notes that will test investor demand today.

In individual stock moves, Visa Inc. slumped around 4% after a report that the US Justice Department plans to file a lawsuit over its alleged monopoly on debit cards. Estee Lauder Cos was among equities rallying after China announced a slew of stimulus aimed at shoring up economic growth. The beauty company generates nearly a third of its sales from Asia.

Investors are awaiting data on the Fed’s preferred price metric and US personal spending later this week for further clues on the depth of future reductions.

Elsewhere, the mood was risk-on as equities climbed after China’s slew of stimulus. European stock gauges traded higher as sectors exposed to the Chinese economy rallied. The dollar slumped.

China’s broad package of monetary stimulus on Tuesday included reduced reserve requirements for banks and at least 800 billion yuan ($114 billion) of liquidity support for stocks. A gauge of the nation’s stocks had its best day since July 2020 and the emerging-market equities index added more than than 1%.

Still, Michael Sneyd, head of cross-asset and macro quantitative strategy at BNP Paribas, said it would take time for the economic impact of stimulus to feed through. “That China stimulus news is probably not enough to take off those downside risks in the European economy just yet.”

Oil prices climbed on hopes of a stronger Chinese economy and as a major Israeli strike on Hezbollah targets in Lebanon kept tensions high in the Middle East. Gold hit a record.

Key events this week:

Bank of Canada Governor Tiff Macklem speaks, Tuesday
Australia CPI, Wednesday
China medium-term lending facility rate, Wednesday
Sweden rate decision, Wednesday
Switzerland rate decision, Thursday
ECB President Christine Lagarde speaks, Thursday
US jobless claims, durable goods, revised GDP, Thursday
Fed Chair Jerome Powell gives pre-recorded remarks to the 10th annual US Treasury Market Conference, Thursday
Mexico rate decision, Thursday
Japan Tokyo CPI, Friday
China industrial profits, Friday
Eurozone consumer confidence, Friday
US PCE, University of Michigan consumer sentiment, Friday

Some of the main moves in markets:

Stocks

The S&P 500 was little changed as of 11:18 a.m. New York time
The Nasdaq 100 rose 0.1%
The Dow Jones Industrial Average rose 0.3%
The Stoxx Europe 600 rose 0.6%
The MSCI World Index rose 0.2%

Currencies

The Bloomberg Dollar Spot Index fell 0.3%
The euro rose 0.4% to $1.1150
The British pound rose 0.3% to $1.3381
The Japanese yen was little changed at 143.67 per dollar

Cryptocurrencies

Bitcoin was little changed at $63,285.45
Ether fell 1.8% to $2,615.19

Bonds

The yield on 10-year Treasuries was little changed at 3.75%
Germany’s 10-year yield declined two basis points to 2.13%
Britain’s 10-year yield advanced one basis point to 3.93%

Commodities

West Texas Intermediate crude rose 1.4% to $71.34 a barrel
Spot gold rose 0.6% to $2,645.52 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Mark Cudmore, Winnie Hsu, Aya Wagatsuma, Margaryta Kirakosian and John Viljoen.